Journal of Financial Economics Vol. 105 No. 3 2012
Does it matter who pays for bond ratings? Historical evidence
open access
Abstract
We test whether Standard and Poor's (S&P) assigns higher bond ratings after it switches from investor-pay to issuer-pay fees in 1974. Using Moody's rating for the same bond as a benchmark, we find that when S&P charges investors and Moody's charges issuers, S&P's ratings are lower than Moody's. Once S&P adopts issuer-pay, its ratings increase and no longer differ from Moody's. More importantly, S&P only assigns higher ratings for bonds that are subject to greater conflicts of interest, measured by higher expected rating fees or lower credit quality. These findings suggest that the issuer-pay model leads to higher ratings.
- DOI
- 10.1016/j.jfineco.2012.04.001
- Volume
- 105
- Issue
- 3
- Pages
- 607-621
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref